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Catering effects in corporate dividend policy: The international evidence

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  • Ferris, Stephen P.
  • Jayaraman, Narayanan
  • Sabherwal, Sanjiv

Abstract

This study tests for the international presence of dividend catering across a sample of twenty-three countries. We find evidence of catering among firms incorporated in common law countries but not for those in civil law nations. Catering persists even after controlling for the effect of the firm's lifecycle. We conclude that when the legal regime and its accompanying set of investor protections permit, investors force dividends from managers, but they also attempt to extract such payouts indirectly by placing a high value on dividend paying firms. The relative failure of civil law firms to cater might be explained by idiosyncratic behaviors in the consumption of the private benefits of control or a lack of interest in responding to temporary market misevaluations of their equity.

Suggested Citation

  • Ferris, Stephen P. & Jayaraman, Narayanan & Sabherwal, Sanjiv, 2009. "Catering effects in corporate dividend policy: The international evidence," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1730-1738, September.
  • Handle: RePEc:eee:jbfina:v:33:y:2009:i:9:p:1730-1738
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    1. repec:eee:finana:v:56:y:2018:i:c:p:112-126 is not listed on IDEAS
    2. Chen, An-Sing & Lin, Shih-Chieh, 2011. "Asymmetrical return on equity mean reversion and catering," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 471-477, February.
    3. Alzahrani, Mohammed & Lasfer, Meziane, 2012. "Investor protection, taxation, and dividends," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 745-762.
    4. repec:ers:ijebaa:v:v:y:2017:i:4:p:104-132 is not listed on IDEAS
    5. Nicolas Aubert, 2016. "Does the Catering Theory of Dividend Apply to the French Listed Firms?," Bankers, Markets & Investors, ESKA Publishing, issue 145, pages 27-38, November-.
    6. Kamal Anouar, 2013. "L'incitation des dirigeants à distribuer de la valeur créée est-elle liée à une prime de dividende positive ?," Working Papers halshs-00796406, HAL.
    7. repec:eee:ecmode:v:64:y:2017:i:c:p:502-512 is not listed on IDEAS
    8. Sungsin Kim & Ji-Yong Seo, 2014. "A Study On Dividend Determinants For Korea's Information Technology Firms," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 10(2), pages 1-12.
    9. Kuo, Jing-Ming & Philip, Dennis & Zhang, Qingjing, 2013. "What drives the disappearing dividends phenomenon?," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3499-3514.
    10. Lee, King Fuei, 2010. "Retail minority shareholders and corporate reputation as determinant of dividend policy in Australia," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 351-368, September.
    11. Wang, Hao, 2011. "Managerial entrenchment, equity payout and capital structure," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 36-50, January.
    12. repec:eee:quaeco:v:64:y:2017:i:c:p:152-161 is not listed on IDEAS
    13. Renneboog, Luc & Trojanowski, Grzegorz, 2011. "Patterns in payout policy and payout channel choice," Journal of Banking & Finance, Elsevier, vol. 35(6), pages 1477-1490, June.
    14. Mori, Naoya, 2010. "Tax clientele effects of dividends under intertemporal consumption choices," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 1089-1097, May.
    15. Liu, Chinpiao & Chen, An-Sing, 2015. "Do firms use dividend changes to signal future profitability? A simultaneous equation analysis," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 194-207.
    16. Eva Liljeblom & Sabur Mollah & Patrik Rotter, 2015. "Do dividends signal future earnings in the Nordic stock markets?," Review of Quantitative Finance and Accounting, Springer, vol. 44(3), pages 493-511, April.
    17. Lucia Dalla Pellegrina & Margherita Saraceno, 2016. "Can Shareholder Litigation Discipline CEO Bonuses in the Financial Sector? The Role of Securities Class Actions," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 45(1), pages 3-36, February.
    18. Kamal Anouar, 2012. "The impact of the catering theory and financial firms' characteristics on dividend decisions: the case of the French market," Working Papers halshs-00765931, HAL.
    19. Ghulam Mujtaba Chaudhary & Shujahat Haider Hashmi & Aqeel Younis, 2016. "Does Dividend Announcement Generate Market Signal? Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 65-72.
    20. Manos, Ronny & Murinde, Victor & Green, Christopher J., 2012. "Dividend policy and business groups: Evidence from Indian firms," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 42-56.
    21. Drobetz, Wolfgang & Grüninger, Matthias C. & Hirschvogl, Simone, 2010. "Information asymmetry and the value of cash," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2168-2184, September.
    22. Kamal Anouar & Nicolas Aubert, 2016. "Does the catering theory of dividend apply to the French listed firms?," Working Papers halshs-01401867, HAL.
    23. Javakhadze, David & Ferris, Stephen P. & Sen, Nilanjan, 2014. "An international analysis of dividend smoothing," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 200-220.
    24. Brockman, Paul & Unlu, Emre, 2011. "Earned/contributed capital, dividend policy, and disclosure quality: An international study," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1610-1625, July.

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    Keywords

    Dividends International Catering;

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